Stocks Set New 5-year Lows on Jitters

Stocks sank to new 5-year lows on Tuesday in a day of heavy, volatile trading as jitters over tepid corporate profits and fears of more corporate chicanery again slammed Wall Street.

"This is a market that is very jittery," said Peter Coolidge, senior equity trader at Brean Murray & Co. "It's sell now, ask questions later."

Shares of Citigroup Inc. and J.P. Morgan Chase & Co. Inc. tumbled, contributing much of the pressure on the blue-chip Dow average, as the two largest U.S. banking companies faced criticism for transactions involving failed energy trader Enron Corp. .

"We have a continuation of concern over corporate accountability and the fear is now spreading to the major banks, such as Citigroup and J.P. Morgan," said Joe Stocke, portfolio manager at StoneRidge Investment Partners. "And investors are reviewing their mid-year financial statements and in some cases reacting and making changes."

Many experts say the market is oversold, but investors hesitate to jump back in the market after watching their portfolios shrink day after day. From its all-time closing high in March, 2000, the broad S&P 500 Index has fallen 47.7 percent, close to the drop of more than 48 percent in the 1973-74 bear market.

Investors sifted through a mixed bag of reports at the peak of the second-quarter earnings season. Chip gear maker Novellus Systems Inc. lost about 9.5 percent after an 80 percent fall in quarterly profit, but leading tool maker Black & Decker Corp. rose 9.6 percent on higher earnings. Worries over corporate earnings combined in recent weeks with fears of more accounting irregularities to push stocks to multiyear lows.

The market faced another rocky session. The tech-laced Nasdaq Composite Index <.IXIC> lost 53.66 points, or 4.18 percent, to 1,228.98, sinking to levels unseen since April 1997 a day after falling through the 1,300-point psychological barrier. The Standard & Poor's 500 <.SPX> fell 22.15 points, or 2.7 percent, to 797.70, also hitting new 5-year lows.

The Dow Jones Industrial average <.DJI> lost 82.24 points, or 1.06 percent, to 7,702.34, having at times been lifted by some bargain hunting. The blue-chip gauge suffered its first close under the 8,000 level since mid-October 1998 on Monday.

Citigroup dropped 15.7 percent, or US$5.04 to US$27 and J.P. Morgan fell 18 percent, or US$4.44 to US$20.08. Concerns grew the two firms may have peddled the type of disguised loans used by Enron to other firms.

Losers outpaced winners by a ratio of about 5 to 1 on the New York Stock Exchange and 3 to 1 on the Nasdaq. More than 2.4 billion shares changed hands on the Big Board and 2.58 billion shares were traded on Nasdaq. Volume has soared in recent days as investors ditched stocks.

More than US$8 trillion in wealth has been wiped out, based on declines from all-time highs reached in early 2000 in the Wilshire 5000 <.TMW>, the gauge that lists all U.S. stocks.

If history is any guide, sharp rallies, albeit at times brief ones, follow periods of extreme stock market volatility and decline. Such rallies include ones that took place after the 1997 Asian crisis, the 1998 Russian debt default and the LTCM hedge fund collapse, as well as the sharply advance in the wake of September 2001 panic sell off.

On Tuesday, a key gauge of market jitters, the Chicago Board Options Exchange Volatility Index <.VIX>, rose to levels not seen since last September when investors dumped stocks in the wake of the Sept. 11 attacks.

The so-called "fear gauge" hit a high of over 52 on Tuesday, compared with 57 at the height of the panic selling in the autumn of 2001. Readings above 40.00 indicate extreme risk aversion among investors, and contrarian analysts look to these for a turning point in the market as investors finally enter the "capitulation" phase of selling the market lock, stock and barrel.

Pressuring the Dow, long-distance telephone and cable-television giant AT&T Corp. fell 7.5 percent, or 72 cents at US$8.80. AT&T posted a US$12.7 billion loss after charges to write down the value of some of its assets, and revenues fell as telephone sales and calling volumes dropped.

The bad news in the telecommunications industry kept coming as other firms reported dour results such as gear-maker Lucent Technologies Inc. and Baby Bell SBC Communications , a Dow component, said it expects full-year earnings to fall short of Wall Street expectations. Losses in the sector now stand at a whopping combined US$20 billion.

Lucent tumbled 45 cents at US$1.65 and SBC shares lost 66 cents at US$23.30 after hitting a new 52-week low.

Novellus, a maker of semiconductor production equipment, fell US$2.80 to US$26.75. The company reported an 80 percent fall in second-quarter profit as a slump in chip sales led to weaker demand for its products.

Black & Decker climbed US$3.54 to US$40.37. The tool maker posted higher second-quarter earnings, as U.S. consumers clamored for tools and home and garden products. The company also raised its full-year earnings estimate.

Dynegy Inc. sank US$2.17 to US$1.21, or 64.2 percent, and hit an all-time low of 92 cents after the energy firm warned its cash flow this year would fall as much as 40 percent of previous forecasts, setting the stage for a possible cash crunch at the Houston-based company.

The decline hit rivals like Reliant Resources and Williams Cos. Inc. , which sank about 40 percent each.

(China Daily July 24, 2002)